Charities around the world do amazing work. But they have an inherent disadvantage when compared to businesses. A business has one customer. That customer makes the decision to purchase a product and they also benefit from the product. A charity has two customers. The first customer is the donor that makes the decision to buy the “product” from a charity (I will call them the buying customer). The second customer is the person the charity gives the product to (I will call them the benefiting customer). That is the inherent nature of a charity, that it has two customers.
For a business, the buying customer and the benefiting customer are one and the same. The customer who chooses to purchase a product can quickly determine its value. The customer can evaluate their purchase decision and answer the question, “Was it worth it?” “Was that Porchetta sandwich from Meat + Bread worth $9?” Or if you are the CEO of Microsoft, you can ask yourself, “Was buying LinkedIn worth $26.2 billion?” In most cases, if the customer is unhappy with the value of the product, they can get a full refund from the business. Or at least try to sell the product to someone else.
For a charity, the buying customer and the benefiting customer are two separate people. In most cases, they will never meet each other. The buying customer decides to make a donation to buy a product from the charity. The charity gives that product to the benefiting customer. The buying customer is not able to determine whether the purchase was worth it because they do not directly benefit from the product. The benefiting customer also cannot determine whether the product was worth its value because they did not have to pay for it. This leads to several inherent disadvantages for charities.
It is Difficult for Charities to get Helpful Product Feedback
To create an amazing product, you need customer feedback. For businesses, you can ask for feedback from your customer. You can ask them directly, send them a survey, or read online reviews. From the feedback you can improve your product.
Charities can also ask for feedback from their benefiting customers. But because the benefiting customer does not pay for the product, they are less critical of its value. Very few people complain about the gifts they receive. Charities could ask their buying customers for feedback, but because the buying customer does not experience the benefit of the product, they cannot give feedback about its value. This makes it difficult for charities to get helpful product feedback, which gives them a disadvantage from improving their product.
It is Costly for Charities to Communicate the Product’s Worth to the Buying Customer
One of the biggest challenges for a business is to get their first-time customers to become repeat customers. The process is fairly simple. A customer buys a product, experiences the benefit, and decides whether they want to buy again. If the product is good enough, first-time customers will naturally become repeat customers and even loyal fans.
Charities have the challenge of communicating the product’s value that the benefiting customer experiences to the buying customers. For example, a charity must send updates from the child in Vietnam to the family that supports it. Every few months there is a semi-personal update. The charity is hoping that the update is enough communication to convince its donor to keep donating. The cost of this communication is high. The charity has to pay someone working with the Vietnamese child to write a letter, that letter has to be translated into the language of the donor and sent to the donor. Many times the charity encourages the donor to write a note or send a gift to the child. The logistics of this is not simple.
As a result, a certain percentage of the buying customer’s donation goes to pay for the logistics and administration of communicating between the benefiting customer and themselves. Most donors are not happy about this “administration fee” and would prefer that all their money go directly to help the child. But if the charity does not communicate between the child and the donor, the donor may eventually stop giving because they will forget about the benefit the child is receiving. It’s a Catch-22.
Could Charities Become Businesses?
Charities have an inherent disadvantage compared to businesses. Charities are slower to improve their products because it is difficult to get helpful feedback. Charities also must spend a higher percentage of money on communicating between the benefiting customer and the buying customer.
What if more charities became businesses? Could some charities shift to a model where its benefiting customer and its buying customer were one and the same? Some charities are doing this by charging a small fee to its benefiting customers. Not only does this help to decrease the inherent disadvantages that traditional charities have, but it also gives dignity to the people benefiting from the products by shifting their identity from being a passive receiver of the charitable product, they become an active decision-maker and purchaser of the product. Sometimes if you pay for something you value it more.